Analysis: To make its purchase of Lucasfilm work, Disney needs "Star Wars" to pay off

The Walt Disney Company will have to untangle a complicated multi-studio web of rights in order to fully exploit its massive purchase last week of George Lucas' most memorable characters.

The Mouse House's deal to buy Lucasfilm is a near-total recall of its $4 billion purchase three years ago of comic-book company Marvel.

It's not just the dollar figures that were nearly identical. As with the comic-book company, Disney may have to shell out a hefty sum on top of the $4.05 billion it already spent to make the deal pay off, either by buying back rights or producing new films.

That's because any gold to be mined from those earlier space operas has to be shared with rivals.

The rights to the first film in the "Star Wars" franchise, retroactively titled "A New Hope," are wholly owned by 20th Century Fox, an individual with knowledge of the deal told TheWrap. And Fox's claim on Luke, Leia and Han Solo doesn't stop there. While Lucasfilm controls the other films in the series, Fox maintains theatrical and home-video distribution rights to those films through May, 2020, historically charging a fee of between 6 percent to 8 percent of receipts.

Disney claims that it has no immediate plans to exploit Lucasfilm's other crown jewel, the Indiana Jones franchise, but should it change that stance, it faces another barrier.

Paramount, which distributed all four films in the adventure franchise, has an option to distribute any future sequels, an individual with knowledge of the pact told TheWrap. It only earns a distribution fee for its pains, but that will eat into any profits for Disney.

Should another Indy film make it out of the gate, that fee will be on the order of what the studio charged to handle the 2008 rollout of "Indiana Jones and the Kingdom of the Crystal Skull": Roughly 12.5 percent of theatrical, home entertainment and television revenue.

It's a safe bet that Disney and its team of lawyers will be poring over contracts that Lucasfilm made with Paramount and particularly Fox to determine how expansive their claims on these films are and if they extend into digital avenues of distribution.

After all, in an industry struggling to compete with online streaming services like Netflix, the "Star Wars" films remain big sellers. When the six-disc set of "Star Wars: The Complete Saga," was released in 2011, it sold $84 million worth of Blu-rays worldwide in its first week of release and became the highest-selling Blu-ray catalog title in history.

Seth Willenson, a Hollywood valuation expert and consultant,believes that while the planned 3D re-releases of the "Star Wars" movies may generate substantial profits both in theaters and on Blu-ray and DVD, the series' true value is as a bulwark against the rapid evolution of entertainment — an ecosystem that is being challenged by digital upstarts and new distribution streams daily.

"I don't think home video or theatrical releases are where the future is going to be," he told TheWrap. "It's going to be across a number of other platforms, many of which we don't know yet. There's ultimately going to be a convergence of all of these types of media, and that's going to increase the value of a few evergreen properties like 'Star Wars' that can cut across all of these channels."

He adds that it is standard practice for studios to haggle, sometimes in court, over contracts signed before internet platforms had matured.

"It's a matter of how a contract is written," Willenson said. "It’s all in the draftsmanship and definitions and whether these contracts were made when things like Netflix were around. People have corrected for that today by including language that gives them all rights in the universe and any planets that have ever been discovered, blah, blah, blah. But there is no way of knowing what rights were granted in these distribution deals and which remain with Lucasfilm."

Regardless, Willenson argues that Disney knew what it was getting in Lucasfilm and is no stranger to dealing with complicated intellectual property rights.

"They were willing to make the investment in Marvel with Paramount having ongoing rights to some of the biggest franchises," he told TheWrap.

Indeed, Marvel's rights were even more Byzantine, with the comic-book company tying up many of its most popular characters, such as Spider-Man and The X-Men, at studios like Sony and Fox. Moreover, at the time of the sale, Universal Studios owned property rights to most major Marvel characters for exclusive use at its theme parks in Orlando and Japan, potentially denying Disney a valuable form of cross-pollination with its own theme parks.

Thanks to the $1.5 billion box-office success of "The Avengers," that pact is looking smart right now. But getting to that point involved another massive expenditure on top of the $4 billion Disney paid to buy Marvel. In 2011, it spent $115 million to buy back distribution of Marvel properties like "The Avengers" and "Iron Man 3" from Paramount.

That hints at the lengths it might go to pry back some rights to "Star Wars" and "Indiana Jones." But those aren't the only costs that will grow. Given the size and scope of the proposed three future "Star Wars" installments, analysts project that each movie will cost in the neighborhood of $200 million to produce.

Despite the questions surrounding the deal and risks associated with breathing fresh life into a franchise that many thought lost its way with its second trilogy, analysts remain bullish on the pact.

"It's not a game changer — as long as they get the new movies to work," Matthew Harrigan, an analyst at Wunderlich Securities, told TheWrap.

Adds Hal Vogel, a media analyst and CEO of Vogel Capital Management: "Clearly Lucas retained merchandising, and that's what Disney gets. Disney is a marvelous merchandiser. People could look back on this and say it was a steal."

In a conference call with analysts and investors Tuesday, Disney took pains to emphasize that it was more interested in wringing cash from future films and using the "Star Wars" characters to make toys and theme park rides than it is on mining Lucasfilm library of older films.

"Our valuation focused almost entirely on the financial potential of the 'Star Wars' franchise, which we expect to provide us with a stream of story-telling opportunities for years to come delivered via all relevant platforms on a global basis," Jay Rasulo, Disney's chief financial officer, said. " There are a number of ways our company will derive value from Lucasfilm's intellectual property, some of which can be realized immediately while others will accrue to us over time."

As for Indiana Jones, Disney Chairman Bob Iger said that while he loves the franchise, there are no plans to extend the series.

"Obviously he went out of way emphasize that there is no value to the ['Indiana Jones'] franchise, but that could just be the first stepping point in a negotiating posture with Paramount," Harrigan said.

Even if Iger is right and the beauty of the deal lies in a "galaxy far, far away," for the foreseeable future, Disney will be sharing profits from the first six "Star Wars" with Fox. That means that in order to make this deal a winner on the magnitude of Disney's purchase of Marvel or Pixar, it has to do something that George Lucas himself was unable to do. Namely, recapture the magic of the initial three films in the series and avoid the pitfalls that led many critics and fanboys to revile his later prequels. In other words, a repeat of Jar Jar Binks could be costly.